Be Prepared or it Can Cost You!

As the New Year begins, it is important for every organization to review their risk management procedures by addressing any weaknesses to prevent potential accidents that lead to costly claims. One risk management tool to assist in mitigating the costs of claims arising out of your organization’s operations is to have adequate insurance coverage in place. Without proper insurance coverage, one lawsuit or a catastrophic loss can close down your operations.

While there are numerous insurance coverages available in the marketplace, the following are basic coverages that every organization should consider:

• Commercial Property Insurance covers your building, personal property, and equipment in the event of a fire, theft, storm, and other perils outlined in the policy. Consider adding Business Interruption and Equipment breakdown coverages to the property policy. Make sure that you insure your buildings and personal property/equipment to reflect the replacement cost value [cost to restore or replace damaged property without deduction for depreciation]. The failure of adequately insuring your property (at least 80%) can result in a coinsurance penalty. Co-Insurance penalty reduces the amount of recovery that you may expect to recover if you under-report the value of your Consider purchasing flood and earthquake insurance since most property policies exclude damage or losses resulting from earthquake and flood.

• General Liability Insurance provides coverage for liability claims from a third party (such as a client, vendor, visitor, etc.) for Bodily Injury and Property damage due to negligence. Most General Liability policies include liability coverage for Products/Completed Operations and Personal Injury (i.e. slander or libel).

• Volunteer-Accident Insurance covers individuals who donate their work to your organization without pay. Coverage is triggered when those individuals are injured while performing duties related to the conduct of your business.

• Workers’ Compensation covers the medical treatments, disability, and death benefits for employees who are injured or killed during the course of employment. In California, employers must carry worker’s compensation if they hire employees. It is imperative that every organization ensures their work environment is safe as claims history is one of the factors that determines the premium. 
• Directors & Officers Liability and Employment Practice Liability Coverage: Coverage for Directors and Officers liability can stand-alone or coupled with other coverages such as Employment Practice Liability. It is important to read the policies terms, conditions, and exclusions of your policy and review the coverage with your attorney. It is also important to check if your policy’s defense limits is inside or outside the liability

1. Directors & Officers Liability- the Board of Directors is ultimately responsible for the nonprofit organization. It is therefore important that they are informed of their legal liability, risk management program, and the organization’s insurance coverages. Directors and officers liability protect the individuals who serve on an organization’s board of directors against claims brought by employees, vendors, or other parties for alleged “wrongful acts” in the management of the organization. There is no standard coverage policy form. Therefore, it is important to read the terms, conditions, and exclusions of the policy. For example, the definition of “insured” differs among insurance

2. Employment Practices Liability – Employment Practice Liability protects the organization against claims made by employees alleging discrimination, wrongful termination, harassment, and employment-related issues. Most carriers do not insure Wage and Hour claims in California but some may offer a defense sublimit for wage and hour

• Umbrella policy’s purpose is to protect your organization against a catastrophic liability loss. The Umbrella policy is a form of liability coverage protecting the policyholder for claims in excess of the limits of the primary General Liability, Automobile, or Workers’ Compensation. Umbrella policies may also include a few other liability coverages, such as: Professional Liability, Employee Benefits Liability, and Abuse & Molestation.

• Crime (Fidelity Bond) Insurance provides a source for recovery of funds embezzled by employees or volunteers. If your CPA or Bookkeeper is an independent contractor, make sure they provide you with proof of their insurance (General Liability, Professional Liability, Bond, and Workers compensation policies). If they do not carry their own insurance, discuss this exposure with your attorney, as most crime policies will not insure the acts of independent

• Professional Liability Insurance coverage that indemnifies the insured for third-party liability claims due to negligence in the performance of professional services. Professionals include Doctors, Lawyers, Therapists, Social Workers, Engineers, etc. The Professional Liability coverage can be purchased as a separate policy or included under a General Liability policy form. However, most standalone professional liability policies are written on a claim made policy form. Therefore, be aware of the retroactive date listed on the policy.

• Abuse and Molestation Coverage can be critical for social service organizations, especially those who work with children and vulnerable adults. There is no “standard” coverage form and before purchasing coverage make sure to read the terms, conditions, and exclusions carefully. Make sure to screen and supervise prospective employees and volunteers and review with your attorney to make sure your organization carries the adequate limits to protect your

• Cyber Insurance is a special form of commercial insurance created to protect businesses against cyber (internet) risks, such as hackers and other breaches of computer system security. Also, check other insurance policies (such as General Liability and Directors & Officers) to determine if those policies carry cyber coverage, before purchasing a cyber policy. Claims resulting from cyber losses are on the rise and it is imperative to ensure that your organization has the proper controls in place to protect your data from a breach.  Most cyber policies are written on a claims-made basis, it is important to be aware of the retroactive date listed on the policy.

• Automobile Liability covers organizations who use vehicles as part of their Company vehicles should be insured under a comprehensive commercial liability with limits high enough to protect the organization. If employees use personal vehicles for business, organizations should add hired and non-owned auto liability coverage to protect the business in the event the employee is in an accident.

Start the New Year off right by reviewing your risk management procedures. It is important that you review your current insurance coverages with your broker and attorney. Also, make sure your organization is in compliance by having your broker and attorney review your contracts.

Baker Romero offers an annual review of coverages as well as risk management and loss control services. Let us know if you have any questions regarding any of the coverages listed above or would like us to provide a quote. We are here to help and we wish you a happy and prosperous New Year.

**This article is intended only for informational purposes and not to be construed as legal advice.